Wholesale costs in the U.S. rose 0.7 percent in March, led by higher prices for energy, light trucks and passenger cars.
The increase in the producer-price index was smaller than forecast as food prices unexpectedly dropped for the first time since August, Labor Department figures showed today in Washington. The median projection in a Bloomberg News survey was for a 1 percent gain. The so-called core measure, which excludes volatile food and energy costs, increased 0.3 percent, more than estimated.
Growth in China and other emerging economies and a weakening dollar are pushing up commodity costs, prompting companies like ConAgra Foods Inc. to boost prices. Increases in raw-materials have opened a rift among Federal Reserve policy makers between those that view the gains as temporary and those that believe it will lead to a pickup in inflation.
“The trend in core prices is upward and that is consistent with what we’re seeing in earlier stages of production,” said Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.
“Manufacturers are finding some pricing power, but there is still quite a lot of slack in the factory sector and demand is moderate.”
Estimates for producer prices were based on forecasts from 76 economists in a Bloomberg News survey. Projections ranged from gains of 0.2 percent to 1.7 percent, after a 1.6 percent rise in February.
Another Labor Department report today showed more Americans unexpectedly filed first-time claims for unemployment insurance last week, reflecting greater-than-normal volatility at the end of the quarter. Applications for jobless benefits rose 27,000 in the week ended April 9 to 412,000, the most in two months.
The increase in claims traditionally seen at the end of a quarter was larger than usual this year, a Labor Department spokesman said as the figures were released to the press.
Stock-index futures extended earlier declines on the unexpected increase in jobless claims. The contract on the Standard & Poor’s 500 Index maturing in June fell 0.6 percent to 1,300.6 at 8:44 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 3.43 percent from 3.46 percent late yesterday.
Wholesale prices excluding volatile food and energy costs were projected to rise 0.2 percent from the prior month, the Bloomberg survey showed. The core index rose 0.2 percent in February.
Inflation Picks Up
Compared with a year earlier, companies paid 5.8 percent more for goods last month after a 5.6 percent rise in February.
Core wholesale prices climbed 1.9 percent in the 12 months ended in March, up from a 1.8 percent increase the prior month and the biggest year-over-year gain since August 2009.
Fuel costs rose 2.6 percent as gasoline prices climbed 5.7 percent. Companies were charged 0.7 percent more for light motor trucks, while prices for passenger cars rose 0.9 percent, the biggest gain since June 2009.
The cost of food decreased 0.2 percent, led by a 21 percent drop in vegetables, after a 3.9 percent gain in February.
Producer prices are calculated based on costs as of the Tuesday of the week containing the 13th of the month, which may influence month-to-month changes.
Expenses for intermediate goods rose 1.5 percent from the prior month, while prices of crude goods decreased 0.5 percent.
Food packagers are beginning to pass along the higher costs. ConAgra Foods Inc. (CAG), which manufactures and markets packaged foods for restaurants and retail consumers, is amomng those raising prices.
“The recent and continued inflationary environment has made it necessary to take prices up responsibly,” Gary Rodkin, president and chief executive officer of the Omaha, Nebraska- based company, said on a March 24 conference call. “We have implemented price increases, either in terms of lower trade promotions or higher list prices, across almost half of our portfolio. Inflation and the consumer mindset will continue to be challenging.”
The Fed has reiterated it plans to stick with a second round of bond purchases that’ll pump $600 billion into the financial system by June.
Trading partners such as China, and Brazil have said the Fed’s unconventional easing policy is behind the surge in commodity prices, and the measure may come under criticism at this week’s meeting of Group of 20 finance ministers and central bankers in Washington.
Some policy makers have said rising commodity prices won’t have a lasting effect on inflation. Fed Chairman Ben S. Bernanke, Vice Chairman Janet Yellen and Federal Reserve Bank of New York President William C. Dudley are among those who’ve said the economic expansion is still too fragile, the unemployment rate is too high and that commodity prices will probably have only a short-term influence on inflation.
That’s put them at odds with Charles Plosser, president of the Federal Reserve Bank of Philadelphia, and Richard Fisher, his counterpart at the Federal Reserve Bank of Dallas, who have said the central bank should consider removing monetary stimulus this year before inflation flares.
Producer prices are one of three monthly inflation gauges reported by the Labor Department. Prices of goods imported into the U.S. climbed 2.7 percent in March from the prior month, the biggest gain since June 2009, data showed this week. Imported food costs jumped by the most since 1994.
Consumer prices, the broadest of the three measures, rose 0.5 percent in March for a second month, and the core index had a 0.2 percent gain, according to the median forecasts of economists surveyed by Bloomberg before a Labor Department report tomorrow.
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